Euro area’s headline inflation likely to have slowed in May, to drift further lower in months ahead

Initial estimates of the March quarter indicate that the euro area economy expanded 0.5 percent in the period to keep the growth rate stable at 1.7 percent as the economic growth continues in Europe. In recent months, purchasing manager surveys have reached levels last seen when the European economy dodged a bullet in the wake of the sovereign debt crisis in 2010, noted Wells Fargo in a research report. But despite these upbeat indicators, inflation has not taken off.

The year-on-year consumer price inflation of the euro area had come in at 1.9 percent in April, whereas the core CPI had come in at just 1.2 percent. Even though the 1.2 percent core rate was modest, it was a rebound in the rate. If the upward trajectory continues, the European Central Bank might turn hawkish during its June policy meeting. According to consensus expectations, the euro area headline inflation is expected to have slowed to 1.5 percent year-on-year in May from April’s 1.9 percent.

Meanwhile, the headline inflation is expected to drift further lower in months ahead, converging towards core inflation by the end of 2017, noted Barclays in a research report. The core inflation is likely to have dropped to 1 percent in May from April’s 1.2 percent.

“We forecast headline inflation will average 1.6 percent in 2017 and 1.3 percent in 2018, while we project core inflation (excluding Food, Alcohol, Tobacco and Energy, FATE) will average 1.0 percent this year and 1.2 percent next”, added Barclays.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -35.4162, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 43.1375. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex